Scottish independence: Tax alone 'cannot tackle inequality'

The report highlights the challenge of achieving Scandinavian levels of equality

Academics at Stirling University have warned major change would be needed to reduce inequality in Scotland using taxation and government spending.

They said, given "relatively high levels" of income inequality in Britain as a whole, achieving a substantial reduction would be "challenging".

The Stirling economists suggested this would be true even if Scotland had full control over taxes and spending.

They warned income tax powers were a "relatively blunt tool".

The Scottish government has argued independence is needed to effectively tackle inequality.

The pro-union Better Together campaign claimed the report undermines the Scottish government's argument.

Stirling University researcher Dr David Comerford and research assistant David Eiser point out in their report that Nordic countries are "often seen as operating the type of social-democratic model that an independent Scotland might wish to follow", but said that inequality is higher in Scotland than in these nations.

Inequality in Scotland is around five percentage points higher than it is in Nordic countries, according to the the GINI index - which is commonly used as a measure of inequality of income or wealth.

Tax thresholds

Putting a penny on the Scottish rate of income tax, when Holyrood gets power to do this in 2016, would only reduce this by about 0.2%, the report said.

Further devolution of powers over income tax - such as the ability to vary tax thresholds - could provide the Scottish government with "an opportunity to more effectively use fiscal policy to influence the income distribution".

The conclusion is that if we want to look like Scandanavians, in terms of income distribution, we would have to do a lot more than they do to compensate for the inequalities within pay rates set by the market

The report also said control over benefits for those who are out of work and those on low incomes "would provide other important levers with which to influence inequality", adding these could be used to target specific groups of the population.

But it warned major changes to tax levels in Scotland could result in higher earners leaving the country, as it concluded: "It is difficult for a small, open economy to implement substantially different redistributive policy from that of its close partners."

Mr Eiser said: "The Nordic countries have lower levels of inequality than Scotland, not only because they have more progressive tax and benefit policies, but also because the level of inequality in income before taxes and benefits is much lower than in Scotland."

Dr Comerford commented: "An independent Scotland would have access to fiscal powers with which it could influence inequality more directly than it can at the moment.

"However, achieving the level of inequality reduction the Scottish government desires through fiscal policy alone would require major policy change.

"This could be problematic because Scotland's high degree of integration with the rest of the UK means such policy change could trigger migration between countries."

Policy tools

Deputy First Minister Nicola Sturgeon welcomed the report. She said: "This report makes clear that Scotland currently has very limited powers to properly tackle the huge inequality which has seen the UK become one of the most unequal societies in the developed world.

"It also finds that independence will give a Scottish government real economic and social policy tools to address the issue."

The Better Together campaign said it believed the report strengthened their argument in favour of retaining the United Kingdom.